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genedrive plc Progressing commercialisation plans genedrive plc (GDR) is a commercial-stage company focused on point-of-care/need molecular diagnostics and biomarkers. Its Genedrive® molecular diagnostic testing platform is at the forefront of this technology, offering a rapid, low-cost, simple-to-use device with high sensitivity and specificity in infectious disease diagnosis. Rapid analysis of patient samples greatly aids clinical and public health decision- making, with field testing particularly important in emerging markets. GDR has signed three commercial deals for its Genedrive HCV ID Kit to date, paving the way to accessing the multi-million-dollar market hepatitis C diagnosis market.
► Strategy: Now that the Genedrive technology platform has received CE Marking, the new management team has completely re-focused the company onto the commercialisation pathway for diagnosis of infectious diseases, signing two important commercial agreements with Sysmex, a major global player.
► Interims: Sales fell 9% in 1H’18 to £2.63m (£2.88m); however, Genedrive-related income increased 8% to £1.29m (£1.24m), helped by early completion of the Department of Defense (DoD) contract. EBIT of -£2.4m (-£2.1m) was 12% better than forecast. Cash at the period-end was £4.6m.
► Genedrive HCV: GDR has signed two distribution deals for its HCV ID Kit with Sysmex for Africa and specific countries in SE Asia, and with ARKRAY for India. Sysmex has undertaken an independent verification field study, incorporated systems and processes, generated its first order, and re-ordered the kit.
► Risks: The platform technology has been de-risked through the receipt of CE Mark for its first two assays – hepatitis C and tuberculosis. The main risk is commercial, given that it often takes time for new technologies to be adopted. However, partnering with a major global player reduces this risk significantly.
► Investment summary: Genedrive technology ticks all the boxes described for an ‘ideal’ in vitro diagnostic that satisfies the need for powerful molecular diagnostics outside the hospital setting. The hepatitis C market is a global opportunity, which is very large, even in developing countries. With strong commercial partners being signed for different territories/countries, early evidence of sales traction would highlight, in our opinion, the significant valuation anomaly that exists.
Financial summary and valuation Year-end June (£000) 2015 2016 2017 2018E 2019E 2020E Sales 4,517 5,063 5,785 5,130 5,630 7,950 Underlying EBIT -3,858 -5,259 -4,812 -5,566 -3,808 -2,716 Reported EBIT -4,040 -5,426 -7,292 -5,687 -3,966 -2,937 Underlying PBT -3,242 -6,330 -5,007 -5,972 -4,223 -3,139 Statutory PBT -3,424 -6,497 -7,487 -6,093 -4,381 -3,360 Underlying EPS (p) -28.3 -54.6 -21.4 -26.6 -17.4 -10.7 Statutory EPS (p) -30.1 -56.2 -34.9 -27.3 -18.2 -11.7 DPS (p) 0.0 0.0 0.0 0.0 0.0 0.0 Net (debt)/cash 903 -3,877 -70 -3,665 -6,190 -8,176 Capital increases 80 0 6,023 0 1,250 0 P/E (x) -1.4 -0.7 -1.8 -1.4 -2.2 -3.6 EV/sales (x) 1.8 1.6 1.4 1.6 1.4 1.0
Source: Hardman & Co Life Sciences Research
12th April 2018
Pharmaceuticals & Biotechnology
Source: Eikon Thomson Reuters
Market data EPIC/TKR GDR Price (p) 38.5 12m High (p) 60.0 12m Low (p) 25.0 Shares (m) 18.7 Mkt Cap (£m) 7.2 EV (£m) 8.1 Free Float* 47% Market AIM
*As defined by AIM Rule 26
Description Genedrive is a disruptive platform designed to bring the power of central laboratory molecular diagnostics to the point-of-care/need setting in a low-cost device offering fast and accurate results, initially for diagnosis of serious infectious diseases such as hepatitis.
Company information CEO David Budd CFO Matthew Fowler Chairman Ian Gilham
+44 161 989 0245 www.genedriveplc.com
Key shareholders Directors 8.2% Calculus 16.2% M&G 13.1% Odey 12.8% Hargreave Hale 7.0% River & Merc. 5.6%
Diary Jul-18 Trading update Oct-18 Finals
Daily GDRG.L 11/04/2016 - 06/04/2018 (LON)Line, GDRG.L, Trade Price(Last), 06/04/2018, 38.5000, 0.0000, (0.00%) Price
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Analysts Martin Hall 020 7194 7632
[email protected] Dorothea Hill 020 7194 7626
[email protected] Grégoire Pavé 020 7194 7628
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12th April 2018 2
Sales and gross margin
► Historical sales are for non-core operations and Genedrive-related grant income
► Over the forecast period, Genedrive sales more than offset the reducing DoD grant income
► The Genedrive grant income is a relatively high-margin activity
► Margins on Genedrive units and disposable cartridges will increase with rising volumes
R&D investment
► R&D investment is written off in the year in which it is incurred
► To date, an estimated ca.£20m has been spent on R&D by the company since incorporation (although not spent exclusively on diagnostics)
► Further investment is planned over the next three years to add more tests onto the Genedrive platform
► Future investment will be largely dependent on the commercial success of the HCV test
Free cashflow and FCF per share
► The non-core services segment is profitable and cash generative; a disposal would provide a cash injection
► The Services business is valued at around £2m – a discount reflecting the >1year duration during which a disposal has been sought
► During the investment phase for the Genedrive launch, GDR is burning £3m-£4m cash p.a.
► Forecasts are dependent on Genedrive gaining early sales traction and generating recurring disposable revenues
Net cash/ Share issues
► To date, GDR has raised only ca.£20m of capital and has received a modest level of non-equity grant funding (note that the funding has not been used solely to develop the Genedrive device)
► The GHIF Convertible Bond ($8m) is out-of-the money and should be considered as long-term debt
► There remains a possibility that non-core services will be disposed, generating cash for working capital purposes and boosting the balance sheet
Source: Company data; Hardman & Co Life Sciences Research
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Interim results Key features The announcement of the interim results provided management with the opportunity to update the market on the meaningful strides that have been made over the last six months. Headline financial information – sales and cash position – was reported to the market in the January trading statement, but overall underlying operating losses were 12% lower than forecast.
Operational highlights ► Genedrive: The most significant event in 1H’18 was the receipt of CE Marking
for the Genedrive HCV ID kit, which represents a significant endorsement of the technology.
► Distribution: GDR has signed exclusive distribution deals with Sysmex, a major global player in diagnostic instruments, reagents and related software, initially covering Africa and a number of countries in SE Asia.
► Services: Following the strategic decision to dispose of its Services division, enacting this has taken longer than expected. However, management has disclosed that it is in a period of exclusivity with a potential purchaser.
Financial highlights ► Sales: As indicated in the January trading statement, reported sales fell 9% in
1H’18 to £2.63m (£2.88m). More importantly, Genedrive-related income increased 8% to £1.29m (£1.24m), helped by early completion of the DoD contract. Non-core services sales declined 18% to £1.35m from an unusually high £1.65m in 1H’17.
► Costs: Overall costs for delivering the services emerged somewhat lower than expected at -£1.29m (-£1.84m), due largely to a turnaround in the pre-clinical research services business.
► R&D: Timing on R&D spend is always difficult to predict; however, the overall investment was 7% lower than forecast at £2.23m (-£2.36m).
► Net cash/(debt): GDR had already indicated its closing cash position at £4.55m, helped by receipt of a £1.2m R&D tax credit. Retranslation of the GHIF bond benefited from currency, offsetting the interest charge, which is being rolled up. The period-end loan was in line with forecasts at -£5.28m.
Interim results – actual vs. forecasts Year-end June 1H’17 1H’18 1H’18 Delta (£000) actual actual forecast Δ Sales 2,882 2,633 2,580 +53 Costs -1,837 -1,286 -1,460 +174 SG&A -1,074 -1,200 -1,105 -95 R&D -2,360 -2,233 -2,400 +167 EBIT (underlying) -2,389 -2,086 -2,385 +299 Pre-tax profit -3,003 -2,157 -2,395 +238 EPS (p) -14.71 -8.76 -10.25 +15% Net cash/(debt) 209 -726 -750 +24
Numbers may not add up precisely due to rounding Source: Hardman & Co Life Sciences Research
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12th April 2018 4
Operational update
Commercial opportunity The sensitivity and specificity of molecular diagnostics has greatly improved the diagnosis of many conditions. However, improvements in these tests have come through increased volumes being performed on large-scale equipment in a laboratory/hospital. The goal of GDR is to offer a technology platform with all the advantages of molecular diagnosis, which can be used outside the hospital/laboratory setting. CE Marking of its Genedrive HCV ID kit makes GDR the first company to reach the market with a non-laboratory-based molecular test for hepatitis C. This adds to the CE Marking achieved already with its tuberculosis (mTB) test. The next step is to make the test available in appropriate markets through distribution deals.
Meanwhile, GDR is looking to expand its menu of tests and to make further enhancements to its existing tests. For example, GDR was awarded, together with NHS Tayside and the University of Dundee, a £0.6m grant from Innovate (UK) for the development of a disposable centrifuge-free plasma separation consumable device that will support the future use of GDR’s HCV ID Kit closer to a point-of-care setting. The aim of this is to increase the level of diagnosis in people infected with HCV from the current level of about 20%, enabling more of them to get treatment.
In addition, GDR has received a conditional offer of £1.1m from Innovate to part-fund the development of improved sample preparation for its mTB test.
Sysmex In order to maximise the opportunity ahead, GDR is looking to sign up large distribution partners in appropriate territories. To that end, it has signed two deals with Sysmex Corporation, a Tokyo-listed multi-national capitalised at about $13bn with annual sales of $2.2bn, covering EMEA and Asia Pacific (excluding India). Sysmex is ranked #8 globally in in vitro diagnostics (IVD), with a very strong presence in haematology, where it is ranked world #1.
Field evaluation study As part of the transition to a commercially available product, Sysmex recommended local validation of the Genedrive HCV ID system. Results from a successful field study, independently carried out at the privately-held Lancet Laboratories, were released to the market on 16th January 2018 and published in the BMJ Gut on 11th April 20181, Sysmex led the support and training of customers, while Lancet Laboratories is well regarded in the field and has operations across the African continent.
► Accuracy: Sensitivity and selectivity of the test when performed by a third party.
► Local samples: Successful use of patient samples stored and processed under local conditions.
► Genotypes: Test further the accurate diagnosis of samples of the HCV genotypes (strains) found particularly in central and southern African countries.
A total of 130 clinical samples from more than six African countries were tested using Genedrive. The Abbott M2000 HCV Real-Time system was used as a reference. 1 Peer-reviewed publication – see page 11 for details
genedrive plc
12th April 2018 5
► Results: Sensitivity and specificity for detection of GCV were 100%.
► Genotypes distinguished: The samples contained HCV genotypes 1-5, and their subtypes were successfully detected using the system.
► Efficiency: 95.4% of test results were achieved on the first attempt, despite many samples being haemolysed (which can be the result of undesirable sampling techniques).
Unlike the Abbott system, Genedrive HCV was found to be fast, no/low maintenance, and to have a low laboratory footprint. The study demonstrated clearly the potential for the system to decentralise clinical diagnosis and management of HCV infection, meaning that HCV public health interventions may be expanded to rural areas of resource-poor countries.
First launch In addition to the field evaluation study, standard procedures have been undertaken to integrate processes/information into Sysmex’s systems. Sysmex intends to have a phased launch programme. The focus of initial launches will be in countries that have screening programmes, an established funding policy, and where drugs for the treatment of hepatitis C are available and affordable.
In Africa, Sysmex consists of a group of 29 distributors covering 46 sub-Saharan African countries. The regulatory team is working on local processes on a country-by-country basis. To date, GDR management is pleased with the high level of engagement with the Sysmex team.
GDR signed a separate deal, with Sysmex Asia Pacific Pte Ltd, covering the Asia Pacific Region, including the key countries of Bangladesh, Pakistan and Malaysia, in November 2017.
ARKRAY Healthcare Highlighting GDR’s approach to try and operate with the most appropriate partner in each country, in March 2018, management signed a commercial agreement with ARKRAY for its Genedrive HCV ID kit in India. Under the agreement, GDR is retaining responsibility for product development, quality assurance, and manufacturing, while ARKRAY will be responsible for sales, marketing, customer support and distribution. Initially, the companies will work together to secure regulatory approval in India. The product is expected to be launched during fiscal 2019.
mTB test Although its tuberculosis test was the first test to receive CE Marking using the Genedrive technology platform, its commercialisation in India did not go according to plan. There is still an enormous push to replace the traditional smear microscopy with more accurate molecular diagnostics, which also provides information about drug resistance. Therefore, GDR has renewed its efforts to develop a next-generation test, with a greater focus on improving sample handling and reducing the manufacturing costs, so that it becomes a more affordable, as well as more convenient and efficient, option.
GDR secured a £1.1m conditional grant from Innovate towards improving sample preparation with a new ‘modular’ solution. The company anticipates that more information on these developments will be available in fiscal 2019.
genedrive plc
12th April 2018 6
Financial forecasts
Profit & Loss ► Sales: Fluctuations in the sales forecasts are due to the DoD contract tailing off
over the next two years, offset by the build-up of Genedrive sales. The non-core services business has stable sales of ca.£3m p.a.
► Gross margin: During the build-up phase for the HCV test, coupled with lower DoD income, gross margins for the Genedrive test are expected to be stable at around 31%-32%, compared with reported gross margins including Services.
► SG&A: Expected to be stable around current levels, as a large part of the marketing costs for tests will be borne by distribution partners.
Profit & Loss account Year-end June (£000) 2015 2016 2017 2018E 2019E 2020E Genedrive 814 1,906 2,619 2,000 2,562 4,905 Services 3,703 3,157 3,166 3,130 3,068 3,045 Sales 4,517 5,063 5,785 5,130 5,630 7,950 COGS -3,933 -3,285 -2,998 -3,530 -3,180 -4,200 Gross profit 584 1,778 2,787 1,600 2,450 3,750 Gross margin 12.9% 35.1% 48.2% 31.2% 43.5% 47.2% R&D -2,942 -4,836 -5,086 -4,800 -4,000 -3,800 SG&A -1,500 -2,201 -2,513 -2,516 -2,592 -2,666 EBITDA -4,243 -6,433 -3,740 -4,650 -2,892 -1,800 Depreciation -241 -240 -216 -216 -216 -216 Amortisation -144 -934 -856 -700 -700 -700 Other income 0 0 0 150 334 0 Underlying EBIT -3,858 -5,259 -4,812 -5,566 -3,808 -2,716 Share-based costs -182 -167 -101 -121 -158 -221 Statutory EBIT -4,040 -5,426 -7,292 -5,687 -3,966 0 Net financials 616 -1,071 -195 -406 -415 -423 Pre-tax profit -3,242 -6,330 -5,007 -5,972 -4,223 -3,139 Exceptional items 0 0 0 0 0 0 Reported pre-tax -3,424 -6,497 -7,487 -6,093 -4,381 -3,360 Tax payable/credit 399 582 1,051 992 827 785 Tax rate 12% 9% 14% 16% 19% 23% Minorities 0 0 0 0 0 0 Underlying net income -2,843 -5,748 -3,956 -4,980 -3,397 -2,354 Statutory net income -3,025 -5,915 -6,436 -5,101 -3,554 -2,574
Ordinary 1.5p shares
Period-end (m) 10,564 10,565 18,689 18,689 21,936 21,936 Weighted average (m) 10,048 10,532 18,466 18,689 19,501 21,936 Fully-diluted (m) 11,869 12,490 20,527 24,222 21,562 23,997
Underlying basic EPS (p) -28.3 -54.6 -21.4 -26.6 -17.4 -10.7 Statutory basic EPS (p) -30.1 -56.2 -34.9 -27.3 -18.2 -11.7 U/l fully-diluted EPS (p) -24.0 -46.0 -19.3 -20.6 -15.8 -9.8 Stat. fully-diluted EPS (p) -25.5 -47.4 -31.4 -21.1 -16.5 -10.7 DPS (p) 0.0 0.0 0.0 0.0 0.0 0.0
Source: Hardman & Co Life Sciences Research
genedrive plc
12th April 2018 7
► R&D: Investment in new tests, initially HIV, will be dictated by the success of the HCV assay. There remains some flexibility about both the quantum and timing of investment into additional tests.
► Services business: Sales of ca.£3m p.a. are expected, with small cash and profit contributions.
► Tax: Modest tax credits on R&D spend are expected over the forecast period, but these will be at lower levels than seen historically.
Balance sheet ► Net cash: The net cash/(debt) position at 30th June 2017 was -£70k, comprising
cash of £5.1m offset by long-term debt (convertible bond) of £5.2m. Cashflow suggests that the company will have net debt of -£3.7m by the end of June 2018.
► Tax credits: Some of its R&D investment attracted tax credits from HMRC. Going forward, the R&D tax credit is expected to approach £1m p.a.
► Working capital: Given that the company will be selling to a large distributor and the non-core business is relatively stable, Genedrive is not expected to have significant working capital requirements during its growth phase.
► Convertible bond: The collaborative funding agreement for a total of $8.0m initiated in July 2014, and revised in July 2016, with the Global Health Investment Fund (GHIF) is treated as long-term debt.
Balance sheet @30th June (£000) 2015 2016 2017 2018E 2019E 2020E Shareholders' funds 9,545 3,753 3,441 -1,660 -3,964 -6,539 Cumulated goodwill 0 0 0 0 0 0 Total equity 9,545 3,753 3,441 -1,660 -3,964 -6,539
Share capital 158 158 280 280 332 332 Reserves 9,387 3,595 3,161 -1,940 -4,297 -6,871 Provisions/liabilities 0 1,250 1,250 1,250 0 0 Deferred tax -30 0 0 0 0 0 Long-term loans 4,025 4,991 5,199 5,473 5,761 6,064 Short-term debt 0 0 0 0 0 0 less: Cash 4,928 1,114 5,129 1,808 -430 -2,112 less: Deposits 0 0 0 0 0 0 less: Non-core invests. 0 0 0 0 0 0 Invested capital 8,612 8,880 4,761 3,255 2,226 1,637
Fixed assets 805 713 568 452 351 267 Intangible assets 7,191 6,273 3,038 2,338 1,638 938 Inventories 163 202 444 564 719 1,015 Trade debtors 1,725 2,290 1,376 1,220 1,339 1,891 Other debtors 466 507 278 256 261 266 Tax liability/credit 685 757 1,213 992 827 785 Trade creditors -696 -914 -816 -961 -866 -1,143 Other creditors -1,727 -948 -1,340 -1,606 -2,042 -2,382 Debtors less creditors 453 1,692 711 -99 -482 -583 Invested capital 8,612 8,880 4,761 3,255 2,226 1,637
Net cash/(debt) 903 -3,877 -70 -3,665 -6,190 -8,176
Source: Hardman & Co Life Sciences Research
genedrive plc
12th April 2018 8
Cashflow ► Cash burn: The underlying cash burn is forecast to trend downwards after fiscal
2018 to ca. -£2.5m (2019) followed by ca.-£2.0m (2020).
► Working capital: Only modest changes in working capital are anticipated, given that the non-core services business is stable and the supply agreement is with a large, well-capitalised distribution partner.
► R&D tax credit: Payment of the amount shown in the balance sheet at the end of June 2017 has already been received; management intends to get annual claims submitted to HMRC in a timely manner.
► Capex: The company does not have any immediate requirement for significant expenditure for capital investment.
Cashflow Year-end June (£000) 2015 2016 2017 2018E 2019E 2020E Underlying EBIT -3,858 -5,259 -4,812 -5,566 -3,808 -2,716 Depreciation 241 240 216 216 216 216 Amortisation 144 934 856 700 700 700 Inventories -163 -39 -242 -120 -155 -296 Receivables -1,066 -606 1,266 156 -119 -552 Payables 107 689 284 145 -95 278 Change in working capital -1,122 44 1,308 181 -369 -571 Exceptionals/provisions -36 0 0 0 0 0 Disposals 0 0 0 0 0 0 Other -202 -151 -162 -274 0 0 Company op. cashflow -4,833 -4,192 -2,594 -4,742 -3,261 -2,371 Net interest -196 -280 14 35 -141 -309 Tax paid/received 1,513 691 757 1,213 992 827 Operational cashflow -3,516 -3,781 -1,823 -3,495 -2,411 -1,853 Capital expenditure -758 -164 -70 -100 -115 -132 Sale of fixed assets 0 0 0 0 0 0 Free cashflow -4,274 -3,945 -1,893 -3,595 -2,526 -1,985 Dividends 0 0 0 0 0 0 Acquisitions 0 0 0 0 -1,250 0 Disposals 0 0 0 0 0 0 Other investments 0 0 0 0 0 0 Cashflow after invests. -4,274 -3,945 -1,893 -3,595 -3,776 -1,985 Share repurchases -22 -44 0 0 0 0 Capital increase 80 0 6,023 0 1,250 0 Currency effect 292 -791 -323 0 0 0 Borrowings acquired 589 0 0 0 0 0 Change in net debt -3,335 -4,780 3,807 -3,595 -2,526 -1,985 Hardman FCF/share (p) -35 -36 -10 -19 -12 -8
Opening net cash 4,238 903 -3,877 -70 -3,665 -6,190 Closing net cash 903 -3,877 -70 -3,665 -6,190 -8,176
Source: Hardman & Co Life Sciences Research
genedrive plc
12th April 2018 9
Company matters Registration Incorporated in the UK with company registration number: 06108621
Registered Office 48 Grafton Street Manchester MX13 9XX
+44 161 606 7258 www.genedriveplc.com
Board of Directors GDR announced recently the appointment of Tom Lindsay as a non-executive director. He has considerable sales and marketing experience in the diagnostics sector, working most recently for Alere Inc. in Africa.
Board of Directors Position Name Nominations Remuneration Audit Chairman Ian Gilham M M M Chief Executive Officer David Budd Chief Financial Officer Matthew Fowler Managing Director Dr Catherine Booth Non-executive director Tom Lindsay Non-executive director Roger Lloyd M M M Non-executive director Robert Nolan M M M
M = member; C = chair Source: Company reports
Share capital At 10th April 2017, there were 18,689,446 Ordinary shares in issue, and a further 1,820,000 share options.
Shareholders
Source: Company reports; RNS announcements
Directors8.2%
Calculus16.2%
M&G13.1%
Odey12.8%
Harg. Hale7.0%
River & Merc.5.6%Amati4.2%
Other32.9%
genedrive plc
12th April 2018 10
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Hardman & Co Research Limited (trading as Hardman & Co) +44 (0) 20 7194 7622 35 New Broad Street Follow us on Twitter @HardmanandCo London EC2M 1NH (Disclaimer Version 4 – Effective from April 2018)
Status of Hardman & Co’s research under MiFID II Some professional investors, who are subject to the new MiFID II rules from 3rd January, may be unclear about the status of Hardman research and, specifically, whether it can be accepted without a commercial arrangement. Hardman’s company research is paid for by the companies about which we write and, as such, falls within the scope of ‘minor non-monetary benefits’, as defined in the Markets in Financial Instruments Directive II.
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Reference Llibre, A. et al., Development and clinical validation of the Genedrive point-of-care test for qualitative detection of hepatitis C virus. Gut.BMJ.com. 11th April 2018: http://gut.bmj.com/content/gutjnl/early/2018/04/03/gutjnl-2017-315783.full.pdf
Genedrive® is a registered Trade Mark of genedrive plc.
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